Item 1. Financial Statements
Item 1. Financial Statements.
Innventure LLC and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except unit and per unit amounts)
September 30, 2024 December 31, 2023
(Unaudited)
Assets
Cash, cash equivalents and restricted cash $ 16,297 $ 2,575
Prepaid expenses and other current assets 1,884 487
Inventory 2,824 —
Due from related parties 210 2,602
Total Current Assets 21,215 5,664
Investments 32,359 14,167
Property, plant and equipment, net 1,227 637
Other assets 930 1,096
Total Assets 55,731 21,564
Liabilities and Unitholders’ Capital
Accounts payable 4,932 93
Accrued employee benefits 7,617 3,779
Accrued expenses 1,929 1,009
Related party payables 815 347
Related party notes payable - current 13,932 1,000
Notes payable - current 693 912
Patent installment payable - current 525 775
Liability for future preferred stock issuance 10,870 —
Other current liabilities 288 253
Total Current Liabilities 41,601 8,168
Notes payable, net of current portion 282 999
Convertible promissory note, net — 1,120
Convertible promissory note due to related party, net — 3,381
Embedded derivative liability — 1,994
Patent installment payable, net of current 13,075 13,075
Other liabilities 501 683
Total Liabilities 55,459 29,420
Commitments and Contingencies
Mezzanine Capital
Redeemable Class I Units, no par value, 1,000,000 units authorized, issued and outstanding
4,477 2,912
Redeemable Class PCTA Units, no par value, 3,982,675 units authorized, issued and outstanding
18,103 7,718
Unitholders' Deficit
Class B Preferred Units, no par value, 6,722,562 and 4,639,557 units authorized, 5,609,951 and 4,109,961 units issued and outstanding
51,683 38,122
Class B-1 Preferred Units, no par value, 2,600,000 units authorized, 342,608 units issued and outstanding
3,323 3,323
Class A Units, no par value, 10,975,000 units authorized, 10,875,000 units issued and outstanding
1,950 1,950
Class C Units, no par value, 1,585,125 units authorized, 1,570,125 units issued and outstanding
981 844
Accumulated deficit ( 90,952 ) ( 64,284 )
Accumulated other comprehensive loss ( 2,373 ) —
Non-controlling interest 13,080 1,559
Total Unitholders’ Deficit ( 22,308 ) ( 18,486 )
Total Liabilities, Mezzanine Capital, and Unitholders' Deficit $ 55,731 $ 21,564
See accompanying notes to condensed consolidated financial statements.
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Innventure LLC and Subsidiaries
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)
(in thousands, except unit and per unit amounts) (Unaudited)
Three months ended September 30, Nine months ended September 30,
2024 2023 2024 2023
Revenue
Management fee income - related parties $ 222 $ 224 $ 669 $ 668
Consulting revenue — 50 — 225
Product sales 95 — 95 —
Total Revenue 317 274 764 893
Operating Expenses
Cost of sales 777 — 777 —
General and administrative 9,052 4,054 25,323 9,878
Sales and marketing 1,629 696 4,178 1,901
Research and development 2,533 1,240 5,978 2,822
Total Operating Expenses 13,991 5,990 36,256 14,601
Loss from Operations ( 13,674 ) ( 5,716 ) ( 35,492 ) ( 13,708 )
Non-operating (Expense) and Income
Interest expense, net ( 852 ) ( 364 ) ( 1,300 ) ( 841 )
Net (loss) gain on investments 7,148 ( 12,148 ) 11,547 ( 2,718 )
Net (loss) gain on investments – due to related parties ( 308 ) 436 ( 468 ) 99
Change in fair value of embedded derivative liability — ( 451 ) ( 478 ) ( 492 )
Equity method investment income (loss) 109 ( 673 ) 893 ( 291 )
Loss on conversion of promissory notes — — ( 1,119 ) —
Other expenses ( 64 ) — ( 64 ) —
Total Non-operating (Expense) Income 6,033 ( 13,200 ) 9,011 ( 4,243 )
Income tax expense — — — —
Net Loss ( 7,641 ) ( 18,916 ) ( 26,481 ) ( 17,951 )
Less: Loss attributable to non-controlling interest ( 5,430 ) ( 45 ) ( 11,762 ) ( 101 )
Net Loss Attributable to Innventure LLC Unitholders $ ( 2,211 ) $ ( 18,871 ) $ ( 14,719 ) $ ( 17,850 )
Net Loss Attributable to Class A Unitholders $ ( 10,233 ) $ ( 9,177 ) $ ( 29,010 ) $ ( 16,848 )
Basic loss per unit $ ( 0.94 ) $ ( 0.84 ) $ ( 2.67 ) $ ( 1.55 )
Basic weighted average Class A Units 10,875,000 10,875,000 10,875,000 10,875,000
Other comprehensive income (loss), net of taxes:
Unrealized loss on AFS debt securities - related party $ ( 2,373 ) $ — $ ( 2,373 ) $ —
Total other comprehensive loss, net of taxes ( 2,373 ) — ( 2,373 ) —
Total comprehensive loss, net of taxes ( 10,014 ) ( 18,916 ) ( 28,854 ) ( 17,951 )
Less: Comprehensive loss attributable to non-controlling interest ( 5,430 ) ( 45 ) ( 11,762 ) ( 101 )
Net Comprehensive Loss Attributable to Innventure LLC Unitholders $ ( 4,584 ) $ ( 18,871 ) $ ( 17,092 ) $ ( 17,850 )
See accompanying notes to condensed consolidated financial statements.
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Innventure LLC and Subsidiaries
Condensed Consolidated Statements of Changes in Mezzanine Capital
(in thousands) (Unaudited)
Class I Amount Class PCTA Amount Total
December 31, 2022 $ 2,984 $ 12,882 $ 15,866
Accretion of redeemable units to redemption value 1 457 458
March 31, 2023 2,985 13,339 16,324
Proceeds from capital calls to unitholders 130 — 130
Accretion of redeemable units to redemption value 423 7,031 7,454
June 30, 2023 3,538 20,370 23,908
Accretion of redeemable units to redemption value ( 469 ) ( 9,680 ) ( 10,149 )
September 30, 2023 $ 3,069 $ 10,690 $ 13,759
December 31, 2023 $ 2,912 $ 7,718 $ 10,630
Accretion of redeemable units to redemption value 280 4,135 4,415
March 31, 2024 3,192 11,853 15,045
Accretion of redeemable units to redemption value 934 ( 572 ) 362
June 30, 2024 4,126 11,281 15,407
Accretion of redeemable units to redemption value 351 6,822 7,173
September 30, 2024 $ 4,477 $ 18,103 $ 22,580
See accompanying notes to condensed consolidated financial statements.
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Innventure LLC and Subsidiaries
Condensed Consolidated Statements of Changes in Unitholders' Deficit
(in thousands) (Unaudited)
Class B Preferred Class B-1 Preferred Class A Class C Accumulated Deficit Accumulated Other Comprehensive Loss Non-Controlling Interest Total Unitholders' Deficit
December 31, 2023 $ 38,122 $ 3,323 $ 1,950 $ 844 $ ( 64,284 ) $ — $ 1,559 $ ( 18,486 )
Net loss — — — — ( 5,219 ) — ( 2,307 ) ( 7,526 )
Units issued to NCI — — — — — — 3,503 3,503
Issuance of preferred units, net of issuance costs 7,566 — — — — — — 7,566
Unit-based compensation — — — 51 — — 345 396
Issuance of units to NCI in exchange of convertible promissory notes — — — — — — 8,443 8,443
Accretion of redeemable units to redemption value — — — — ( 4,415 ) — — ( 4,415 )
March 31, 2024 45,688 3,323 1,950 895 ( 73,918 ) — 11,543 ( 10,519 )
Net loss — — — — ( 7,288 ) — ( 4,026 ) ( 11,314 )
Units issued to NCI — — — — — — 7,348 7,348
Issuance of preferred units, net of issuance costs 2,852 — — — — — — 2,852
Unit-based compensation — — — 45 — — 248 293
Accretion of redeemable units to redemption value — — — — ( 362 ) — — ( 362 )
June 30, 2024 48,540 3,323 1,950 940 ( 81,568 ) — 15,113 ( 11,702 )
Net loss — — — — ( 2,211 ) — ( 5,430 ) ( 7,641 )
Other comprehensive loss, net of taxes — — — — — ( 2,373 ) — ( 2,373 )
Units issued to NCI — — — — — — 3,071 3,071
Issuance of preferred units, net of issuance costs 3,143 — — — — — — 3,143
Unit-based compensation — — — 41 — — 326 367
Accretion of redeemable units to redemption value — — — — ( 7,173 ) — — ( 7,173 )
September 30, 2024 $ 51,683 $ 3,323 $ 1,950 $ 981 $ ( 90,952 ) $ ( 2,373 ) $ 13,080 $ ( 22,308 )
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Innventure LLC and Subsidiaries
Condensed Consolidated Statements of Changes in Unitholders' Deficit (continued)
(in thousands) (Unaudited)
Class B Preferred Class B-1 Preferred Class A Class C Accumulated Deficit Accumulated Other Comprehensive Loss Non-Controlling Interest Total Unitholders' Deficit
December 31, 2022 $ 20,803 $ 3,323 $ 1,950 $ 639 $ ( 38,564 ) $ — $ 656 $ ( 11,193 )
Net loss — — — — ( 3,573 ) — ( 23 ) ( 3,596 )
Units issued to NCI — — — — — — 104 104
Issuance of preferred units, net of issuance costs 712 — — — — — — 712
Unit-based compensation — — — 50 — — 103 153
Accretion of redeemable units to redemption value — — — — ( 458 ) — — ( 458 )
March 31, 2023 21,515 3,323 1,950 689 ( 42,595 ) — 840 ( 14,278 )
Net loss — — — — 4,594 — ( 33 ) 4,561
Issuance of preferred units, net of issuance costs 2,599 — — — — — — 2,599
Unit-based compensation — — — 52 — — 133 185
Accretion of redeemable units to redemption value — — — — ( 7,454 ) — — ( 7,454 )
June 30, 2023 24,114 3,323 1,950 741 ( 45,455 ) — 940 ( 14,387 )
Net loss — — — — ( 18,871 ) — ( 45 ) ( 18,916 )
Units issued to NCI — — — — — — 101 101
Issuance of preferred units, net of issuance costs 5,038 — — — — — — 5,038
Tax advanced distributions to members — — — — ( 243 ) — — ( 243 )
Unit-based compensation — — — 51 — — 244 295
Accretion of redeemable units to redemption value — — — — 10,149 — — 10,149
September 30, 2023 $ 29,152 $ 3,323 $ 1,950 $ 792 $ ( 54,420 ) $ — $ 1,240 $ ( 17,963 )
See accompanying notes to condensed consolidated financial statements.
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Innventure LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands) (Unaudited)
Nine months ended September 30,
2024 2023
Cash Flows Used in Operating Activities
Net loss $ ( 26,481 ) $ ( 17,951 )
Adjustments to reconcile net loss to net cash and cash equivalents used in operating activities:
Unit-based compensation 1,056 633
Interest income on debt securities - related party ( 110 ) —
Accrued unpaid interest on note payable 931 397
Change in fair value of embedded derivative liability 478 492
Change in fair value of payables due to related parties 468 ( 99 )
Non-cash interest expense on notes payable 351 252
Net (gain) loss on investments ( 11,547 ) 2,718
Equity method investment loss (gain) ( 893 ) 291
Loss on conversion of promissory notes 1,119 —
Depreciation expense 146 —
Non-cash rent costs 186 133
Other, net — 27
Changes in operating assets and liabilities:
Prepaid expenses and other current assets ( 1,605 ) ( 930 )
Inventory ( 2,824 ) —
Accounts payable 4,863 ( 32 )
Accrued employee benefits 3,838 2,111
Accrued expenses 674 113
Other current liabilities ( 147 ) ( 89 )
Liability for future preferred stock issuance 10,870 —
Other assets ( 20 ) ( 202 )
Net Cash Used in Operating Activities ( 18,647 ) ( 12,136 )
Cash Flows Used in Investing Activities
Purchase of shares in equity method investees — ( 2,000 )
Contributions to equity method investees — ( 130 )
Investment in debt securities - related party ( 7,400 ) —
Acquisition of property, plant and equipment ( 736 ) ( 173 )
Proceeds received related to PCT stock sale 2,314 708
Net Cash Used in Investing Activities ( 5,822 ) ( 1,595 )
Cash Flows Provided by Financing Activities
Proceeds from issuance of capital, net of issuance costs 13,122 8,249
Proceeds from the issuance of units to NCI 13,859 205
Proceeds from convertible notes payable — 2,000
Payment of debts ( 790 ) ( 19 )
Receipt of Capital from Class I Unitholder — 130
Tax advance distribution to Members — ( 243 )
Proceeds of related party notes payable 12,000 3
Net Cash Provided by Financing Activities 38,191 10,325
Net (Decrease) Increase in Cash, Cash Equivalents and Restricted Cash 13,722 ( 3,406 )
Cash, Cash Equivalents and Restricted Cash Beginning of period 2,575 7,544
Cash, Cash Equivalents and Restricted Cash End of period $ 16,297 $ 4,138
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Innventure LLC and Subsidiaries
Condensed Consolidated Statements of Cash Flows (continued)
(in thousands) (Unaudited)
Nine months ended September 30,
2024 2023
Supplemental Cash Flow Information
Cash paid for interest $ 1,070 $ 220
Supplemental Disclosure of Noncash Financing Information
Accretion of redeemable units to redemption value $ 11,950 $ 2,237
Debt discount and embedded derivative upon issuance $ — $ 1,119
Issuance of Class Preferred B Units to extinguish convertible notes payable $ 396 $ 100
Issuance of Class B Preferred Units in exchange for Innventus ESG Fund Equity $ 183 $ —
Issuance of NCI in exchange for interest in Innventus ESG Fund $ 146 $ —
Commissions payable on issuance of Class B Preferred Units $ 163 $ —
Commissions payable on issuance of NCI $ 83 $ —
Issuance of Class B Preferred Units to extinguish consulting fees payable $ 24 $ —
Issuance of units to NCI in exchange of convertible promissory notes $ 7,324 $ —
Conversion of working capital loans to equity method investees into investments in debt securities - related party $ 2,600 $ —
Unrealized loss on investments in debt Securities - related party through OCI $ 2,373 $ —
Recognition of right of use asset and corresponding lease liability $ — $ 731
See accompanying notes to condensed consolidated financial statements.
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Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
Note 1. Nature of Business
Unless the context otherwise requires, references herein to "Innventure", "we", "us", "our" and "the Company" refer
to the business and operations of Innventure LLC and its consolidated subsidiaries for all periods prior to the
Closing, and to the business and operations of Innventure, Inc. and its consolidated subsidiaries for all periods after
Closing.
Innventure LLC is an origination platform company with its headquarters in Orlando, Florida. Innventure LLC founds, funds, and operates companies with a focus on transformative, sustainable technology solutions acquired or licensed from Multinational Corporations (‘‘MNCs’’). As owner-operators, Innventure LLC takes what it believes to be breakthrough technologies from early evaluation to scaled commercialization utilizing an approach designed to help mitigate risk as it builds disruptive companies that it believes have the potential to achieve a target enterprise value of at least $1 billion. Innventure LLC defines ‘‘disruptive’’ as innovations that have the ability to significantly change the way businesses, industries, markets and/or consumers operate.
On October 2, 2024, the business combination that the Company entered into with, among others, Learn CW, closed and was preliminarily accounted for as a reverse recapitalization and Innventure LLC has been determined to be the accounting acquirer and the Predecessor. The information provided in this Quarterly Report on Form 10-Q only reflects the financial condition and results of operations of the Predecessor.
Innventure, Inc., formerly known as Holdco, is the successor to Innventure LLC following the business combination and is a Delaware corporation, whose common stock is listed and traded on the Nasdaq Capital Market (“Nasdaq”). Following the business combination, the Company will continue the business of Innventure LLC described above.
Both Learn CW and Holdco, a direct wholly-owned subsidiary of Learn CW prior to the business combination, were created for the purpose of consummating a business combination.
The financial information for the Predecessor for such periods does not reflect the material changes to the business as a result of the business combination. Accordingly, the financial information for the Predecessor is not necessarily indicative of the Company’s results of operations, cash flows or financial position following the completion of the business combination.
Business Combination
On the Closing Date, Holdco, consummated the business combination pursuant to the terms of the business combination agreement, dated as of October 24, 2023 (the “Business Combination Agreement”), by and among Holdco, Learn CW and Innventure LLC, LCW Merger Sub, Inc. and Innventure Merger Sub, LLC, a direct, wholly-owned subsidiary of Holdco (“Innventure Merger Sub” and, together with LCW Merger Sub, the “Merger Subs”). Pursuant to the Business Combination Agreement, on the Closing Date, (i) LCW Merger Sub merged with and into Learn CW (the “LCW Merger”), with Learn CW as the surviving company of the LCW Merger and (ii) Innventure Merger Sub merged with and into Innventure LLC (the “Innventure Merger” and together with the LCW Merger, the “Mergers”), with Innventure LLC as the surviving entity of the Innventure Merger. Following the Mergers, each of Learn CW and Innventure LLC became a subsidiary of Holdco, and Holdco became a publicly traded company. Holdco changed its name to Innventure, Inc. in connection with the business combination.
Note 2. Accounting Policies
Basis of Presentation
These condensed consolidated financial statements are unaudited and should be read in conjunction with the Company's most recent annual audited consolidated financial statements and notes thereto. These condensed consolidated financial statements have been prepared in accordance with the instructions for the Securities and Exchange Commission’s (“SEC’s”) Form 10-Q and Article 10 of Regulation S-X. Certain information and footnote
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Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles ("GAAP") have been condensed or omitted pursuant to rules and regulations of the SEC, although the Company believes that the disclosures are adequate to make the information presented not misleading.
We use the same accounting policies in preparing quarterly and annual financial statements.
Going Concern
In connection with the Company’s assessment of going concern considerations, management has determined that in order to maintain its current level of operations, the Company will require additional working capital from cash flows from operations, from the sale of its capital and/or issuance of debt. The Company intends to obtain additional financing in the future to proceed with its business plans. The future value of investments held is unpredictable and subject to market events outside of the Company’s control. If the Company is unable to acquire additional working capital, it will be required to significantly reduce its current level of operations.
The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern within one year after the date the accompanying condensed consolidated financial statements are issued; however, the above conditions raise substantial doubt about the Company’s ability to do so. The condensed consolidated financial statements do not include any adjustments to reflect the probable future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern. There can be no assurance that management will be successful in accessing additional capital or implementing its business plan or that the successful implementation of such business plan will actually improve our operating results.
Recently Adopted Accounting Pronouncements
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions . This ASU clarifies that contractual sale restrictions should not be considered in measuring the fair value of equity securities. This ASU is effective for fiscal years beginning after December 15, 2023, including interim periods therein, with early adoption permitted. The Company adopted this ASU on January 1, 2024, and the adoption did not have a material impact on the Company’s condensed consolidated financial statements.
Recently Issued But Not Yet Adopted Accounting Standards
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"), which enhances prior reportable segment disclosure requirements in part by requiring entities to disclose significant expenses related to their reportable segments. The amendments in ASU 2023-07 are effective on a retrospective basis for annual periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact this accounting standard will have on its segment disclosures.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures , which requires public entities, on an annual basis, to provide disclosure of specific categories in the rate reconciliation, as well as disclosure of income taxes paid disaggregated by jurisdiction. The amendments in ASU 2023-09 are effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-09 on its disclosures.
Note 3. Investments
Investments consist of the following:
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Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
September 30, 2024 December 31, 2023
Equity-method investments $ 5,704 $ 4,482
Exchange-traded investments at fair value 18,917 9,685
Investment in debt securities - AFS 7,738 —
Total Investments $ 32,359 $ 14,167
Equity-method investments
The Company’s equity-method investments primarily include its investment in the Innventus ESG Fund I, L.P. (the “ESG Fund"), for which it serves as general partner, and AeroFlexx, LLC ("AeroFlexx"), which are both not consolidated, but for which the Company exerts significant influence.
The Company’s equity-method investment in the ESG Fund reflects the Company’s general partner interest in the ESG Fund, which represents approximately 5 % of the ESG Fund’s total capital commitments. The general partner interest is not consolidated because the ESG Fund is not considered a variable interest entity and the Company does not hold a controlling financial interest in the ESG Fund under the voting interest entity model. The ESG Fund is an investment company that follows a specialized basis of accounting established by GAAP. The Company’s general partnership interest in the ESG Fund is substantially illiquid. While the ESG Fund’s holdings are accounted for at fair value, the equity-method investment in the ESG Fund is adjusted to reflect the fair value of the underlying investments of the ESG Fund as of September 30, 2024, and December 31, 2023. The fair value of the underlying investments in the ESG Fund is based on the Company’s assessment, which takes into account expected cash flows, earnings multiples and/or comparisons to similar market transactions, among other factors. Valuation adjustments reflecting consideration of credit quality, concentration risk, sales restrictions and other liquidity factors are integral to valuing these instruments.
The Company held a 31 % equity-method investment interest in AeroFlexx as of both September 30, 2024, and December 31, 2023. The Company recorded its investment in AeroFlexx at $ 721 and $ 1,570 as of September 30, 2024, and December 31, 2023, respectively.
Exchange-traded investments
The Company previously formed PureCycle Technologies, Inc. ("PCT") in partnership with a multinational corporation. PureCycle became a publicly traded company in 2021 and the remaining shares of PCT's common stock held by the Company are classified as an Exchange-traded investment at fair value recorded through net income (“FVTNI”). The remaining shares of PCT's common stock held by the Company are subject to a final lock-up which expires based upon the achievement of certain operational metrics, as certified by certain third-parties, of PCT’s Ironton, Ohio plant. Furthermore, the Company does not have an economic interest in the remaining shares of PCT's common stock held by the Company.
During the nine months ended September 30, 2024, the Company sold 400,000 PCT shares for aggregate net proceeds of $ 2,302 . The PCT shares were measured at their fair value immediately prior to the transactions.
Investment in debt securities - AFS
On July 1, 2024, the Company ("Lender") entered into an intercompany loan agreement with AeroFlexx ("Borrower") under which the Company will lend up to $ 10,000 to AeroFlexx. The pre-existing working capital interest-free loans to AeroFlexx, amounting to $ 7,635 were considered outstanding term loans under this agreement and the Company has also lent Borrower an additional $ 2,365 during the three months ended September 30, 2024 under this agreement.
19
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
The term loans and any unpaid accrued interest are required to be repaid by the maturity date, which is the earlier of (i) December 31, 2026 or (ii) the date of the sale, transfer or other disposition all of the Borrower’s assets or Borrower's stock is consummated. After any full or partial repayment of the term loans, the Borrower may borrow additional funds up to the $ 10,000 limit until the maturity date. The loan bears interest at the applicable federal rate published by the Internal Revenue Service and is adjusted on a quarterly basis.
The Company has an option to convert the outstanding principal amount of the term loans and any unpaid accrued interest into shares or units in connection with the next issuance of equity securities by the Borrower, at a price equal to 100 % of the price per share or unit and on the same terms and conditions as apply to such issuance.
If, by January 1, 2025, the Borrower has not raised equity financing equal to or more than a target of $ 10,000 , then on January 2, 2025, the outstanding principal and any unpaid accrued interest on the term loans will automatically convert into Class D preferred units of the Borrower at the same price per unit and on the same terms and conditions as the Class D preferred unit of the Borrower purchased by Lender prior to the date of this loan agreement, up to the amount necessary to reach the $ 10,000 target.
The Company accounted for this loan as an investment in debt securities and classified it as an available for sale ("AFS") debt security. Based on the AFS classification, the Company records this investment at fair value at each reporting date and as such recorded the changes in fair value of this loan (including the adjustment to fair value at inception date) in Other Comprehensive Income ("OCI").
As the loan is maturing in 2026, it is included in the non-current line item 'Investments' of the condensed consolidated balance sheets. Also, the change in fair value of this investment in debt securities of $ 2,373 is included as 'Unrealized loss on AFS debt securities - Related Party' in the condensed consolidated statements of operations and comprehensive income (loss).
Note 4. Fair Value
Fair Value Hierarchy
September 30, 2024 Quoted Prices
in Active
Markets for
Identical Assets
(Level 1) Significant Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3) Total
Assets:
Exchange-traded investments at FVTNI $ 18,917 $ — $ — $ 18,917
Investment in debt security - AFS $ — $ — $ 7,738 $ 7,738
Liabilities:
Related party payables $ 815 $ — $ — $ 815
December 31, 2023 Quoted Prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs (Level 3) Total
Assets:
Exchange-traded investments at FVTNI $ 9,685 $ — $ — $ 9,685
Liabilities:
Embedded derivative liability $ — $ — $ 1,994 $ 1,994
Related party payables $ 347 $ — $ — $ 347
20
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
Investment in debt security - AFS
The investment in debt security is stated at fair value as described in Note 3. Investments. The fair value of the Class D Units is estimated on an as-converted basis using a Black-Scholes model incorporating breakpoints upon which each tranche of equity participates in distributions. The as-converted shares related to the loan are included in the AeroFlexx capitalization table given the expectation that they will have been converted to Class D Units by the liquidity date.
September 30, 2024 Issuance
Volatility 120.0 % 120.0 %
Time to liquidity 3 years
3 years
Discount for lack of marketability 28.0 % 28.0 %
Weighted average cost of capital 45.0 % 45.0 %
Derivative Liabilities
Embedded derivative liabilities contained within the 2025 Notes (as defined below, see Note 5. Borrowings) are stated at fair value. Fair value is determined utilizing discounted cash flows, using unobservable market data inputs, and an option pricing model based on management’s probability weighted expected outcome with respect to a financing or a change of control. The derivatives associated with the 2025 Notes were settled in March 2024 due to conversion of the 2025 Notes in a qualified financing. A summary of the significant unobservable inputs utilized to estimate the fair value is as follows:
Embedded derivative within 2025 Note issued August 18, 2022 with a principal balance of $ 4,000
Settlement December 31, 2023
Discount Rate 35 % 35 % - 36 %
Probability of Expected Outcomes
Financing 100 % 95 %
Change in control — % 3 %
Other — % 2 %
Embedded derivative within 2025 Notes issued June 7 & July 3, 2023 with an aggregate principal balance of $ 2,000
Discount Rate 71 % - 87 %
71 % - 88 %
Probability of Expected Outcomes
Financing 100 % 95 %
Change in control — % 3 %
Other — % 2 %
Significant increases or decreases to any of these inputs would result in a significantly higher or lower liability.
The following tables present information about the Company’s Level 3 assets and liabilities that are measured at fair value on a recurring basis:
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Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
Embedded Derivative Liability Investment in debt security - AFS
Balance as of December 31, 2022 $ 1,641 $ —
Change in fair value 492 —
Issuance 1,119 —
Balance as of September 30, 2023 $ 3,252 $ —
Balance as of December 31, 2023 $ 1,994 $ —
Issuance — 10,000
Accrued interest — 110
Change in fair value 478 ( 2,372 )
Settlement ( 2,472 ) —
Balance as of September 30, 2024 $ — $ 7,738
The total net change in fair value included in earnings for the three months ended September 30, 2024, and 2023 were $ — and $ 451 , respectively, and for the nine months ended September 30, 2024, and 2023 were $ 478 and $ 492 , respectively.
The carrying amounts of prepaid expenses and other current assets, due from related parties, other assets, accounts payable, accrued expenses, accrued employee benefits, other current liabilities and other liabilities approximate fair value due to the short maturity terms of these instruments. The Company's convertible promissory notes were converted in March 2024 and the related embedded derivative liabilities settled as part of this conversion (see Note 5. Borrowings) . The fair value of the Company's convertible promissory notes as of December 31, 2023, was $ 4,501 .
Note 5. Borrowings
September 30, 2024 December 31, 2023
Series 1 promissory notes, 9 - 15 % interest, maturity: 36 – 60 months from issuance
$ 975 $ 1,911
Related party notes (net of unamortized loan fees of $ 68 and $ 0 )
13,932 1,000
Convertible promissory notes, 8 % interest, maturity: 36 months from issuance
— 6,634
Total Notes Payable 14,907 9,545
Less: unamortized debt discount — ( 2,133 )
Less: current portion of related party notes payable ( 13,932 ) ( 1,000 )
Less: current portion of notes payable ( 693 ) ( 912 )
Total Long-term Notes $ 282 $ 5,500
The Company has accrued interest of $ — and $ 634 in long-term notes as of September 30, 2024, and December 31, 2023, respectively.
The Company’s notes payable and notes payable to related parties mature as follows:
Year Ending December 31, Amount
2024 (remaining 3 months) $ 12,364
2025 2,543
Total Debt $ 14,907
22
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
Series 1 Promissory Notes
During the nine months ended September 30, 2024, noteholders with principal amounts totaling $ 396 converted their Series 1 promissory notes into 40,829 of Class B Preferred Units based on the Class B Preferred Unit issuance price of $ 9.6992 per share. The noteholders elected to receive the last interest payment due and waive the prepayment fee, if applicable, in connection with the transaction. The Company accounted for the conversion of promissory notes as an extinguishment, the impact of which is immaterial to the Company’s financial statements. During the nine months ended September 30, 2023, noteholders with principal amounts totaling $ 100 converted their Series 1 promissory notes into 10,310 of Class B Preferred Units based on the Class B Preferred Unit issuance price of $ 9.6992 per share.
In addition, during the nine months ended September 30, 2024, the Company extended Series 1 promissory notes with principal of $ 122 and $ 421 for an additional year for the 1st and 2nd time at 12 % from 9 % and 15 % from 12 % interest, respectively. During the nine months ended September 30, 2023, the Company extended Series 1 promissory notes with principal of $ 772 and $ 616 for an additional year for the 1st and 2nd time at 12 % from 9 % and 15 % from 12 % interest, respectively.
For the three months ended September 30, 2024 and 2023, interest expense on the Series 1 promissory notes was approximately $ 39 and $ 82 , respectively, and for the nine months ended September 30, 2024 and 2023, interest expense on the Series 1 promissory notes was approximately $ 138 and $ 246 , respectively, and is included in interest expense on the condensed consolidated statements of operations and comprehensive income (loss). The interest expense on Series 1 promissory notes includes the amortization of issuance costs of $ — and $ 8 , for the three months ended September 30, 2024 and 2023, respectively, and $ — and $ 26 , for the nine months ended September 30, 2024 and 2023, respectively.
Related Party Notes
On August 20, 2024, the Company entered into unsecured promissory notes with two related parties for principal amounts of $ 10,000 and $ 2,000 , respectively. The note with the first party contains a loan fee of $ 1,000 which is payable with the repayment of the principal amount of the note and the note with the second party contains interest at the rate of 11.5 % per annum. The principal amounts, loan fees and accrued interest are repayable at the earlier of October 15, 2024 and the first business day following the date of consummation of the business combination, as discussed in Note 1 above.
The note holders of these notes have an option to receive equity in form of shares of Series A Preferred Stock of Innventure, Inc, in lieu of receipt of cash repayment of all amounts due under the notes. Such shares will be equal to all amounts due under the notes including loan fees and accrued interest, divided by the original issue price of such preferred stock, with substantially the same terms as the designations, powers, preferences and other rights, and the qualifications, limitations and restrictions of the Series A Preferred Stock set forth at the time of original issue.
During the three and nine months ended September 30, 2024, the interest expense on these related party notes, including amortization of loan fee in form of debt discount, was $ 932 .
In addition to the related party notes above, the Company also has a related party note for $ 1,000 that had no stated interest or maturity at issuance. The Company formally came to terms on the related party note by executing an unsecured promissory note with the related party on May 2, 2024. As per the terms of the executed agreement, the note matures on December 21, 2024. Upon maturity, the Company is required to repay the outstanding principal amount of $ 1,000 and a loan fee equal to approximately $ 63 . There is no stated interest as per the terms of the executed agreement but it provides for interest at the rate of 8 % per annum on the outstanding amount from the maturity date if the Company fails to pay any amount due on the maturity date.
Convertible Promissory Notes
23
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
On March 31, 2024, the 8 % convertible promissory notes (the "2025 Notes") with a $ 6,000 principal balance and $ 755 of accrued interest were converted into 693,480 Accelsius Series A units at a conversion price of $ 9.74 per share. The conversion was pursuant to the occurrence of a qualified financing event. The related embedded derivative liability was extinguished in connection with the conversion.
During 2024, the Company recognized $ 231 in interest expense associated with the 2025 Notes discounts and the contractual interest expense for 2024 was $ 120 .
During the three and nine months ended September 30, 2023, the Company recognized $ 204 and $ 293 , respectively, in interest expense associated with the 2025 Notes discounts and the contractual interest expense for the three and nine months ended September 30, 2023 was $ 46 and $ 316 , respectively.
As of September 30, 2024, and December 31, 2023, the unamortized discount was $ — and $ 2,133 , respectively.
Note 6. Inventory
Inventory consisting of raw materials and finished goods are stated at the lower of cost or net realizable value. Cost of our inventories is determined by costing methods that approximate an average cost basis.
Inventory consisted of the following:
September 30, 2024 December 31, 2023
Raw materials $ 2,617 $ —
Work in process 35 —
Finished goods 172 —
Total inventories $ 2,824 $ —
Note 7. Property, Plant and Equipment
September 30, 2024 December 31, 2023
Leasehold improvements $ 668 $ 38
Machinery & equipment 676 86
Computers & office equipment 19 19
Construction in progress 19 502
Property, Plant and Equipment, Gross 1,382 645
Less: Accumulated depreciation ( 155 ) ( 8 )
Property, Plant and Equipment, Net $ 1,227 $ 637
Note 8. Unitholders' Deficit
September 30, 2024 December 31, 2023
Units Authorized Units Issued and Outstanding Units Authorized Units Issued and Outstanding
Class B Preferred Units 6,722,562 5,609,951 4,639,557 4,109,961
Class B-1 Preferred Units 2,600,000 342,608 2,600,000 342,608
Class A Units 10,975,000 10,875,000 10,975,000 10,875,000
Class C Units 1,585,125 1,570,125 1,585,125 1,570,125
Preferred Return
24
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
Class B and B-1 Preferred Unitholders are entitled to distributions at a rate of 6 % per year of unreturned capital of preferred units. Class B and B-1 Preferred Unitholders have accumulated $ 4,743 and $ 359 , respectively, in unreturned preferred returns as of September 30, 2024 and $ 2,555 and $ 210 , respectively, as of December 31, 2023.
Transactions
The Company continued to receive additional capital in connection with its Class B Preferred Unit capital raise which closed on January 26, 2024. The Company received $ 13,932 and $ 8,771 in cash during the nine months ended September 30, 2024 and 2023 and issued 1,437,868 and 904,375 new Class B Preferred Units, respectively, at the issuance price of $ 9.6992 per share. For the three months ended September 30, 2024 and 2023, the Company received $ 3,384 and $ 5,382 in cash and issued 350,360 and 554,966 new Class B Preferred Units, respectively, at the issuance price of $ 9.6992 per share.
Note 9. Unit-based Compensation
Equity Incentive Plan
The Company recognized compensation costs related to the Equity Incentive Plan of $ 41 and $ 51 for the three months ended September 30, 2024 and 2023, respectively, and $ 137 and $ 153 for the nine months ended September 30, 2024 and 2023, respectively. As of September 30, 2024, the Company has $ 234 in unit-based compensation expense remaining to be recognized over approximately 1.4 years.
Subsidiary Equity Plan
During the three months ended September 30, 2023, there were 109,000 Class C units granted under the Subsidiary Equity Plan with a grant date fair value of $ 3.51 . There were no Class C units granted under the Subsidiary Equity Plan during the three months ended September 30, 2024. During the nine months ended September 30, 2024 and 2023, there were 110,000 and 347,000 Class C units granted under the Subsidiary Equity Plan with a grant date fair value of $ 4.41 and $ 3.51 , respectively.
The Company recognized compensation costs related to the Subsidiary Equity Plan of $ 326 and $ 244 for the three months ended September 30, 2024 and 2023, respectively, and $ 919 and $ 480 for the nine months ended September 30, 2024 and 2023, respectively, which is recorded in general and administrative, sales and marketing and research and development in the condensed consolidated statements of operations and comprehensive income (loss). As of September 30, 2024, the Subsidiary has $ 1,633 in unit-based compensation expense remaining to be recognized over approximately 1.7 years.
Note 10. Income Taxes
For the three and nine months ended September 30, 2024, no income tax provision was recorded due to maintenance of a full valuation allowance against net deferred tax assets as of December 31, 2023 due to the Company’s history of losses and the Company’s belief that it is not more likely than not the benefit will be realized. There was no income tax effect for the three and nine months ended September 30, 2023. The effective tax rate was zero for the three and nine months ended September 30, 2024 and 2023.
Note 11. Net Loss Per Unit
The following table presents a reconciliation of the numerator and denominator for the basic earnings per unit calculations using the two class method:
25
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
Three months ended September 30, Nine months ended September 30,
2024 2023 2024 2023
Numerator:
Net loss attributable to Innventure LLC Unitholders $ ( 2,211 ) $ ( 18,871 ) $ ( 14,719 ) $ ( 17,850 )
Less: cumulative earnings to participating unitholders 849 455 2,341 1,235
Less: deemed dividend related to Class PCTA and Class I Units 7,173 ( 10,149 ) 11,950 ( 2,237 )
Net Loss Attributable to Class A Unitholders $ ( 10,233 ) $ ( 9,177 ) $ ( 29,010 ) $ ( 16,848 )
Denominator:
Weighted average Class A Units outstanding, basic 10,875,000 10,875,000 10,875,000 10,875,000
Net Loss Per Unit Attributable to Class A Unitholders, Basic $ ( 0.94 ) $ ( 0.84 ) $ ( 2.67 ) $ ( 1.55 )
The Class PCTA and Class I units are redeemable instruments within mezzanine capital. The increases and decreases in the carrying amount of these instruments are charged against accumulated deficit during respective periods and treated as a deemed dividend in the calculation of net loss attributable to Class A Unitholders.
Note 12. Related Party Transactions
As more fully described in Note 5. Borrowings, the Company has various notes with affiliates. The Company had a convertible promissory note to the ESG Fund as part of the 2025 Notes which was converted during the nine months ended September 30, 2024. The Company also has short-term notes with three separate related parties.
Transactions with Innventure1
The related party liability established in connection with the ownership interest in the Company's PCT common stock assigned by Innventure1 to investors that are considered related parties of the Company was revalued to $ 125 and $ 53 as of September 30, 2024 and December 31, 2023, respectively. The change in value was included in Net (loss) gain on investments – due to related parties in the condensed consolidated statements of operations and comprehensive income (loss).
Transactions with the ESG Fund
In the normal course of business, the Company advances certain expenses on behalf of the ESG Fund. Expenses which meet certain criteria are reimbursed to the Company by the ESG Fund. Amounts paid by the Company not reimbursed by the ESG Fund totaled $ 11 and $ 30 for the three months ended September 30, 2024 and 2023, respectively, and $ 46 and $ 39 for the nine months ended September 30, 2024 and 2023, respectively. There was a receivable of $ 6 and $ 2 as of September 30, 2024 and December 31, 2023, respectively, related to those expenses included in Due from related parties in the condensed consolidated balance sheets.
The Company earns a 1 - 2 % management fee for administrative, finance and accounting, and other back-office functions from the ESG Fund. Management fees earned from the ESG Fund totaled $ 195 and $ 198 for the three months ended September 30, 2024 and 2023, respectively, and $ 588 and $ 592 for the nine months ended September 30, 2024 and 2023, which is recorded as Management fee income - related parties in the condensed consolidated statements of operations and comprehensive income (loss).
In March 2021, the Company entered into a purchase option agreement with the ESG Fund, a related party, to sell 145,161 shares of PCT common stock with an exercise price of $ 1 . The option period would have expired on July 22, 2024, and the Company measured the derivative liability at fair value. The option was exercised in March 2022
26
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
and the shares are subject to the lock-up provisions. The liability due to the ESG Fund as of September 30, 2024 and December 31, 2023 was $ 690 and $ 294 , respectively, and is included in Related party payables in the condensed consolidated balance sheets.
During the nine months ended September 30, 2023, the Company sold 23,712 of Accelsius Class A Units to the ESG Fund for aggregate proceeds of approximately $ 104 . This amount is reflected in non-controlling interests in the condensed consolidated statements of changes in unitholders' deficit.
Transactions with AeroFlexx
In the normal course of business, the Company advances certain expenses on behalf of AeroFlexx. Amounts paid by the Company that were reimbursed by AeroFlexx totaled $ 3 and $ 18 for the three months ended September 30, 2024 and 2023, respectively, and $ 14 and $ 76 for the nine months ended September 30, 2024 and 2023, respectively. There was a receivable of $ 205 and $ — as of September 30, 2024 and December 31, 2023, respectively, related to those expenses included in Due from related parties in the condensed consolidated balance sheets.
Note 13. Commitments and Contingencies
PCT Guaranty
On April 22, 2020, the Company entered into a guaranty with a counterparty to unconditionally guarantee PCT’s obligation to reimburse a $ 5,000 prepayment upon PCT’s failure to meet certain performance thresholds. Performance thresholds include the commission and construction of a plant. The guaranty has no expiration. The total amount paid by the Company under the guaranty is $ — and total interest paid is $ — . As of September 30, 2024 and December 31, 2023, there is no principal outstanding under the guaranty.
Patent Agreement Contingent Fees
The Company's minimum patent royalties included in Patent installment payables on the condensed consolidated balance sheets are due as follows:
Years Ending December 31, Amount
2024 $ 525
2025 700
2026 825
2027 825
2028 825
Thereafter 9,900
Total $ 13,600
The Company is committed to make royalty payments on direct revenue generated from the subject technology and indirect revenue generated including additional incentives based on the volume of units sold at percentage rates in the single digits to mid-teens as defined within the respective agreement. Each year the Company will pay such royalties at the higher of: (i) the minimum amount due (noted in the table above) and (ii) the royalty calculated amount based on revenue and units sold.
Series B Preferred Equity of Innventure, Inc.
During the three and nine months ended September 30, 2024, the Company received $ 10,870 of advance funds for future equity issuance of Holdco upon Closing on the business combination. This amount is shown within 'Liability for future preferred stock issuance' of the condensed consolidated balance sheets.
27
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
Note 14. Business Segment Data
Our operating businesses include corporate (including service activities) and technology businesses. Reportable segment information for the three and nine months ended September 30, 2024 and 2023, respectively, are as follows.
Three months ended September 30, Nine months ended September 30,
2024 2023 2024 2023
Revenues:
Corporate $ 249 $ 301 $ 750 $ 947
Technology 95 — 95 —
Elimination of management services provided to Technology ( 27 ) ( 27 ) ( 81 ) ( 54 )
Consolidated Revenues $ 317 $ 274 $ 764 $ 893
Interest Expense:
Corporate $ 971 $ 82 $ 1,070 $ 246
Technology 73 310 564 669
Elimination of intercompany interest ( 73 ) ( 13 ) ( 213 ) ( 20 )
Consolidated Interest Expense $ 971 $ 379 $ 1,421 $ 895
Interest Income:
Corporate $ 185 $ 25 $ 326 $ 65
Technology 7 4 7 10
Elimination of intercompany interest ( 73 ) ( 13 ) ( 213 ) ( 20 )
Consolidated Interest Income $ 119 $ 16 $ 120 $ 55
Depreciation Expense:
Corporate $ — $ — $ — $ —
Technology 77 — 146 —
Consolidated Depreciation $ 77 $ — $ 146 $ —
Net Loss:
Corporate $ ( 1,857 ) $ ( 15,217 ) $ ( 10,260 ) $ ( 9,867 )
Technology ( 5,784 ) ( 3,699 ) ( 16,221 ) ( 8,084 )
Consolidated Net Loss $ ( 7,641 ) $ ( 18,916 ) $ ( 26,481 ) $ ( 17,951 )
Capital Expenditures:
Technology 96 49 736 173
Consolidated Capital Expenditures $ 96 $ 49 $ 736 $ 173
28
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
September 30, 2024 December 31, 2023
Total Assets:
Corporate $ 43,260 $ 22,953
Technology 44,327 16,246
Eliminations ( 31,856 ) ( 17,635 )
Consolidated Total Assets $ 55,731 $ 21,564
All revenue from external customers and long-lived assets are located entirely in the United States of America (USA).
Note 15. Subsequent Events
In connection with the preparation of the condensed consolidated financial statements and related disclosures for the period ended September 30, 2024, management has evaluated events through November 14, 2024 which is the date the condensed consolidated financial statements were available to be issued. Events occurring after September 30, 2024 are:
The Business Combination
The business combination consummation ("Closing") occurred on the Closing Date and, as a result of the business combination, (a) each Learn CW Class A ordinary share and Class B ordinary share issued and outstanding immediately prior to Closing (and not cancelled or redeemed) was converted into the right to receive one share of Holdco common stock, par value $ 0.0001 ("Common Stock"); (b) each Learn CW public warrant and private placement warrant outstanding immediately prior to Closing was assumed by Holdco and converted into a Holdco warrant ("Warrant"); (c) the Innventure LLC equity units (other than the Innventure LLC Class PCTA units ("PCTA Units") and Class I units ("Class I Units")) issued and outstanding immediately prior to Closing were converted into the right to receive shares of Holdco common stock; and (d) the PCTA Units and the Class I Units of Innventure LLC remained outstanding.
Following the Closing, each of Learn CW and Innventure LLC are subsidiaries of Holdco, Holdco changed its name to "Innventure, Inc." and Holdco became a publicly traded company. Holdco's shares of Common Stock began trading on Nasdaq under the symbol “INV” on October 3, 2024. While Holdco intended for and expected its Warrants to trade on Nasdaq, ultimately there was not a sufficient number of holders to meet the applicable Nasdaq requirements. Each Warrant entitles the holder to purchase one share of Common Stock at a price of $ 11.50 per share. The Warrants will become exercisable on November 1, 2024 and will expire on October 2, 2029 or earlier upon redemption or liquidation. The public units of Learn CW automatically separated into the component securities upon consummation of the business combination and, as a result, no longer trade as a separate security.
The business combination was preliminarily accounted for as a reverse recapitalization in accordance with GAAP, and under this method of accounting, Learn CW was treated as the acquired company for financial reporting purposes and Innventure LLC was treated as the accounting acquirer.
The aggregate consideration for the Innventure Merger (the “Merger Consideration”) paid to the Innventure Members (as defined in the definitive proxy statement filed with the SEC on September 10, 2024 by Learn CW) consisted of 43,490,268 shares of Common Stock. A portion of this Merger Consideration to be delivered to Innventure Members consists of a contingent right to receive up to 5,000,000 shares of Common Stock (the “Company Earnout Shares”), which shares are subject to the following milestone conditions (collectively, the “Milestone Conditions”):
• 40 % of the Company Earnout Shares will be issuable upon Accelsius Holdings LLC (Accelsius” or “ACC”) having entered into binding contracts providing for revenue for the Company Group (as defined in
29
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
the Business Combination Agreement) within 7 years following the Closing (the “Vesting Period”) in excess of $ 15,000 in revenue ("Milestone One");
• 40 % of the Company Earnout Shares will be issuable upon Holdco’s formation of a new subsidiary, in partnership with an MNC (as defined in the Business Combination Agreement), as determined using the Innventure LLC's “DownSelect” process, within the Vesting Period ("Milestone Two"); and
• 20 % of the Company Earnout Shares will be issuable upon AeroFlexx, LLC having received in excess of $ 15,000 revenue within the Vesting Period ("Milestone Three").
Immediately after giving effect to the business combination (including as a result of the conversions described above), there were 44,602,673 shares of Common Stock and 18,646,000 Warrants issued and outstanding. As of the Closing, the Innventure Members owned approximately 86.3 % of the Holdco’s outstanding shares of Common Stock, and the former shareholders of Learn CW, including (i) Learn CW's sponsor, CWAM LC Sponsor LLC (the “Sponsor”) and (ii) Learn CW's independent directors, owned approximately 13.7 % of Holdco’s outstanding shares of Common Stock.
On September 30, 2024, Learn CW held an extraordinary general meeting in which Learn CW's shareholders approved the business combination of Learn CW, Innventure LLC, Holdco, and the Merger Subs, pursuant to the transactions contemplated by the Business Combination Agreement. As a result, effective on the Closing Date, 250,000,000 shares of Holdco common stock, par value $ 0.0001 per share, were authorized and 25,000,000 shares of Holdco preferred stock, par value $ 0.0001 per share, were authorized. Of the 25,000,000 shares of preferred stock authorized by the Amended and Restated Certificate of Incorporation, the Holdco board of directors designated 3,000,000 shares as Series B preferred stock ("Series B Preferred Shares").
On September 30, 2024, Learn CW shareholders holding 8,310,747 Learn CW Class A ordinary shares exercised their right to redeem such shares for cash at a redemption price of approximately $ 11.04 per share, for an aggregate redemption amount of $ 91,721 . On October 3, 2024, Learn CW paid such shareholders the aggregate amount of $ 91,721 for the redemption from the assets held as cash investments in the Learn CW trust account.
On the Closing Date, Holdco settled obligations of Learn CW including (a) outstanding accounts payable and accrued expenses totaling $ 9,233 and (b) the outstanding amount of the promissory note due to the Sponsor totaling $ 4,628 . Additionally, Holdco settled obligations of Innventure LLC including transaction-related items of $ 6,493 as part of the Closing. In total, Holdco paid $ 20,354 to settle these obligations using cash from the Learn CW trust account and financing secured through Series B Preferred Shares, which is discussed below.
Series B Preferred Shares
On the Closing Date Holdco issued 750,000 Series B Preferred Shares to Commonwealth Asset Management LP (together with its assignee, "CWAM LP"), an affiliate of the Sponsor, and 352,000 Series B Preferred Shares to certain purchasers (together with CWAM LP, the "Series B Investors"), for a total of 1,102,000 Series B Preferred Shares at a purchase price of $ 10.00 per share (the “Original Issue Price”) and a total amount of $ 11,020 .
The Series B Preferred Shares will convert into Common Stock on the fifth anniversary of the issue date, or owners can choose to convert before this date. The number of shares of Common Stock that each holder of Series B Preferred Shares will receive upon conversion of all of such holder’s shares of Series B Preferred Shares will be the number of shares equal to the Conversion Rate (as defined below) multiplied by the number of shares of Series B Preferred Shares held by such holder (subject to a threshold amount). No fractional shares shall be issued upon the exercise of any conversion right. Any fractional shares that a holder would otherwise be entitled to will be rounded up to the next whole share. The conversion rate (“Conversion Rate”) will equal a fraction whose numerator is the Original Issue Price, which is $ 10.00 per share of Series B Preferred Shares and whose denominator is the lesser of (i) the Reset Conversion Price and (ii) $ 12.50 , where the “Reset Conversion Price” means the greater of (a) $ 5.00 and (b) the 10 -trading day volume-weighted average closing price of the Common Stock of Holdco.
With respect to payment of dividends, the Series B Preferred Shares shall rank senior in priority of payment to all junior stock ("Junior Stock") and parity stock ("Parity Stock") in any liquidation, dissolution, winding up or distribution of Holdco, and junior to any existing or future secured or unsecured indebtedness and other liabilities (including trade payables) of Holdco. With respect to (a) distribution of assets and (b) all other liquidation, winding
30
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
up, dissolution, dividend and redemption rights, the Series B Preferred Shares shall rank pari passu in priority of payment to all Parity Stock and senior in priority of payment to all Junior Stock in any liquidation, dissolution, winding up or distribution of Holdco, and junior to any existing or future secured or unsecured indebtedness and other liabilities (including trade payables) of Holdco.
Per each whole share of Series B Preferred Shares, the holders of Series B Preferred Shares are entitled to cast the number of votes equal to (i) $ 10.00 , divided by (ii) the Minimum Price (which shall have the meaning assigned in Nasdaq Listing Rule 5635(d)) of Common Stock as of the initial issue date of the Series B Preferred Shares and will vote with the holders of Common Stock as a single class an on an as-converted basis, except as provided by law or applicable to Nasdaq Listing Rules. Holders of Series B Preferred Shares can vote along with holders of Common Stock, but their voting power, on an as-converted basis cannot exceed 19.99 % of the total outstanding voting power.
Dividends for Series B Preferred Shares will accrue annually at 8.0 % of the liquidation preference, defined as, with respect to a holder, the Original Issue Price multiplied by the number of Series B Preferred Shares held by the holder. All dividends are prior to and in preference over any dividend on any Junior Stock or Parity Stock and shall be declared and fully paid before any dividends are declared and paid, or any other distributions are made, on any Junior Stock or Parity Stock. Dividends will be due and payable annually in arrears as payment in kind on each the last day of the last quarter in each fiscal year of Holdco. Holders are also eligible to receive dividends declared on Common Stock.
On October 2, 2024, all Innventure LLC unvested Employee Class C Equity Incentive Plan Units vested according to the accelerated vesting trigger in the board resolution dated October 26th, 2023. The triggering event was the Closing of a special purpose acquisition company transaction. The accelerated vesting results in 213,533 units vesting and an additional compensation expense of $ 234 recognized in October 2024 related to the acceleration.
Other events
The Company sold 331,006 of Accelsius Series A Units for aggregate proceeds of approximately $ 4,030 . This amount will be reflected in non-controlling interests in the condensed consolidated statements of changes in unitholders' deficit in future periods.
The Company advanced funds in the amount of $ 925 to AeroFlexx.
Loan and Security Agreement
On October 22, 2024, the Company entered into a Loan and Security Agreement with WTI Fund X, Inc. and WTI Fund XI, Inc., (collectively, “WTI Lenders”), as supplemented by the Supplement (the “Supplement”) to the Loan and Security Agreement, dated October 22, 2024, by and among the Company and the WTI Lenders (the “Loan and Security Agreement” and, together with the Supplement and other related loan documents, the “Loan Documents”). The Loan and Security Agreement provides for a term loan facility in the aggregate principal amount of up to $ 50,000 (the "WTI Facility"), of which (i) up to $ 20,000 is made available after October 22, 2024 and through November 15, 2024 (the "First Tranche"); (ii) up to $ 15,000 is made available after November 1, 2024 and through November 30, 2024 (the "Second Tranche"); and (iii) up to $ 15,000 will be made available after December 31, 2024 and through January 31, 2025 (the "Third Tranche") (provided that up to $ 7,500 of the Third Tranche will be made available until March 31, 2025), in each case, subject to the satisfaction of certain conditions, including, without limitation, (x) with respect to the First Tranche, available cash (after giving effect to the loans to be made under the First Tranche) of $ 35 million and (y) with respect to each of the Second Tranche and the Third Tranche, satisfaction of certain financial conditions and the WTI Lenders’ satisfaction with the Company’s forward-looking plan at such time. In the event that no loans are made prior to March 31, 2025, the obligations in the Loan and Security Agreement and the Supplement that would otherwise remain in effect until payment in full shall terminate.
Borrowings under the First Tranche, the Second Tranche and the Third Tranche will accrue interest at a rate per annum equal to the greater of (i) the “prime rate” of interest, as published by The Wall Street Journal on the date that the WTI Lenders prepare the promissory notes for the borrowings under such tranche, plus 5.00 % and (ii) 13.50 % and will amortize, after an interest-only period of twelve months in the case of the First Tranche and six months in the case of each of the Second Tranche and the Third Tranche, in equal monthly installments over a period of thirty months .
31
Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
The Company has not yet drawn down any funds from this term loan facility. Obligations under the Loan Documents are secured by a lien on substantially all of the assets of Innventure LLC and the Company.
In connection with the Loan and Security Agreement, Innventure, Inc. issued two warrants to purchase up to an aggregate total of 1,000,000 shares of Common Stock, to WTI Fund X, LLC and WTI Fund XI, LLC (each an affiliate of the WTI Lenders, collectively, the "WTI Holders"), respectively (the “WTI Warrants”). Each warrant is exercisable into one share of Common Stock at price of $ 0.01 per share (subject to certain limitations, adjustment and certain other rights to possible future financings, such as subsequent round stock (as defined in the Warrant Agreement), in accordance with terms of the WTI Warrants) through March 31, 2025. The WTI Warrants include customary registration rights and change-of-control adjustments and may be exchanged, at the WTI Holders' option, for a cash amount equal to $ 15 million (in the aggregate), subject to adjustment to the extent a WTI Warrant is partially exercised, in lieu of exercise upon a change of control, at any time from and after the four-year anniversary of October 22, 2024. In connection with any equity or convertible debt securities that Innventure, Inc may from time to time propose to offer or sell after the date of issuance of the WTI Warrants, the WTI Holders will also have the option to purchase up to $ 5 million (in the aggregate) or such amount as is necessary for each of WTI Holder to maintain its pro rata ownership in certain future financings conducted by Innventure, Inc, subject to customary exclusions.
Ducera
On January 31, 2024, the Company entered into an engagement letter with Ducera Partners, LLC and its affiliates including, where appropriate, Ducera Securities LLC (collectively ("Ducera") under which Ducera was retained to provide the Company with financial advisory and investment banking services. Pursuant to the engagement letter, Ducera is compensated for services rendered through a financing fee, which is calculated as a percentage of the debt and equity financing the Company raises. Per the terms of the engagement letter, the financing fee is equal to (i) 1.0 % of secured debt raised payable in cash and 1.0 % of secured debt raised payable in warrants; (ii) 2.0 % of unsecured debt raised payable in cash and 2.0 % of unsecured debt raised payable in warrants; and (iii) 4.0 % of equity raised payable in cash and 4.0 % of equity raised payable in warrants.
On October 2, 2024, as described above in this footnote, the Company issued the Series B Preferred Shares for a total amount of $ 11,020 . In connection with this issuance of equity securities, a financing fee became payable to Ducera, with $ 441 payable in cash and $ 441 payable in warrants (each calculated as 4 % of $ 11,020 ). The $ 441 payable in cash, plus an additional $ 8 of expenses, was paid in cash on October 2, 2024 as part of the Company's transaction-related items settled at Closing with the remainder of the obligation outstanding. The Company and Ducera are currently discussing the appropriate satisfaction of the outstanding obligation.
Grail
The Company previously entered into an agreement with Grail Partners, LLC ("Grail") on October 19, 2023, pursuant to which Grail was retained to provide the Company with financial advisory and merchant banking services in relation to the business combination transaction. Pursuant to this agreement, the Company agreed to pay a $ 50 monthly retainer fee upon execution of the agreement and at the time of closing of the business combination, a minimum success fee of 1.25 % of the aggregate value of all consideration in connection with the business combination. The success fee on the Closing Date was calculated as approximately $ 5,717 .
On October 18, 2024, the Company entered into an amendment to the agreement with Grail, pursuant to which, the Company agreed to promptly pay, for services previously rendered, a success fee of $ 600 in cash ("Cash Success Fee") and an additional success fee of $ 3,000 (the "Equity Success Fee") in preferred stock of Innventure, Inc. Under the amendment, the Company and Grail agreed that the Cash Success Fee and Equity Success Fee replace the success fee under the original agreement and will be paid in addition to the aggregate monthly retainer fee of $ 550 previously paid.
The Company also entered into a letter agreement with Grail on October 18, 2024, in which Grail will provide financial advisory services to the Company for a term of 15 months, commencing on November 1, 2024. During the term, the Company will pay Grail a monthly fee, in cash, of $ 100 payable monthly in arrears beginning on December 1, 2024. An amount of $ 625 of the aggregate $ 1,500 of fees that may otherwise accrue pursuant to the
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Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
agreement are contingent upon the achievement of the Milestone Conditions set forth in the Business Combination Agreement, such that $ 250 is contingent the achievement of Milestone One, $ 250 is contingent on the achievement of Milestone Two, and $ 125 is contingent on the achievement of Milestone Three. If any Milestone Condition is not achieved by October 2, 2031, then the fee contingent upon the achievement of such milestone will not be payable by the Company.
Roth
The Company previously entered into a letter agreement with Roth Capital Partners, LLC ("Roth") in July 2024, pursuant to which Roth was engaged to provide capital markets advisory services for a duration of twelve months . The Company paid Roth an advisory fee of $ 500 , payable at the time of Closing of the business combination transaction. Of the advisory fee, a minimum of $ 250 could be paid in cash and, at the option of Company (or Innventure Inc.), up to 50 %, or $ 250 , can be paid in cash or Common Stock, based upon a value of $ 10.00 per share (subject to adjustment if certain conditions were met and such conditions were not met on the applicable date). On October 2, 2024, the Company paid $ 250 in cash and on October 31, the Company issued to Roth 25,000 shares of Common Stock in settlement of $ 250 of the advisory fee (accordingly, at an effective price of $ 10.00 per share) .
Unsecured Promissory Note Amendments
On October 1, 2024, the Company entered into amended and restated agreements to amend the terms of the unsecured promissory notes with two related parties, with principal amounts of $ 10,000 and $ 2,000 , respectively, as described in Note 5. Borrowings.
Under the amended note with the first party, the maturity date was extended to the earlier of (i) January 31, 2025 and (ii) the first business day following the date on which the Company has sufficient capital to be able to repay all amounts outstanding under the note and otherwise meet its expected working capital needs as determined by the Company in its reasonable discretion. The loan fee of $ 1,000 , required under the original agreement, on the note with the first party, became due on or around the amendment date but has not yet been paid and interest will now accrue at the rate of 15.99 % per annum.
Under the amended note with the second party, the maturity date was extended to January 31, 2025, and the interest rate was increased from 11.5 % to 13.5 % per annum. Additionally, $ 1,000 of the principal amount became due on or around the amendment date but has not yet been paid.
As a result of the amendments, the two related parties no longer have an option to receive equity in form of shares of Series A preferred stock of Innventure, Inc, in lieu of receipt of cash repayment of all amounts due under the notes.
Standby Equity Purchase Agreement
Concurrently with the parties entering into the Business Combination Agreement, Holdco entered into the SEPA with Yorkville on October 24, 2023. Pursuant to the SEPA and subject to certain conditions and limitations, the Company has the option, but not the obligation, to sell to Yorkville, and Yorkville must subscribe for, an aggregate amount of up to $ 75,000 of Holdco’s Common Stock, at the Company’s request any time during the commitment period commencing on the Closing Date and continuing for a term of three years . Holdco agreed and paid, to YA Global II SPV, LLC, a subsidiary of Yorkville, (i) a structuring fee in the amount of $ 25 and (ii) a commitment fee of $ 375 .
Each advance that Holdco issues in writing to Yorkville under the SEPA (each, an “Advance,” and notice of such request, and “Advance Notice”) may be in an amount of Common Stock up to the greater of (i) $ 10,000 or (ii) the aggregate daily trading volume of Common Stock for the five trading days prior to Holdco requesting an Advance. The purchase price for the shares of Common Stock set forth in the Advance is determined by multiplying the market price of Common Stock by either (a) 95 % of the daily volume weighted average price (“VWAP”) during the applicable one-day pricing period or (b) 97 % of the lowest daily VWAP during the applicable three consecutive trading day pricing period. The applicable pricing period depends on the type of Advance Notice selected by the Company under the SEPA. Additionally, the Company may establish a minimum acceptable price in each Advance Notice below which the Company will not be obligated to make any sales to Yorkville.
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Innventure LLC and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(in thousands, except unit and per unit amounts) (Unaudited)
The SEPA will automatically terminate on the earlier to occur of (i) November 1, 2027 and (ii) the date on which Yorkville shall have made payment of advances pursuant to the SEPA for Common Stock equal to the commitment amount of $ 75,000 .
Holdco has not sold any shares to Yorkville pursuant to the SEPA.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.